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Ad libitum [116K]
2 years ago
14

You are bullish on Telecom stock. The current market price is $100 per share, and you have $15,000 of your own to invest. You bo

rrow an additional $15,000 from your broker at an interest rate of 6.0% per year and invest $30,000 in the stock. a. What will be your rate of return if the price of Telecom stock goes up by 8% during the next year? (Ignore the expected dividend.) (Round your answer to 2 decimal places.)
Business
1 answer:
likoan [24]2 years ago
7 0

Answer:

10%

Explanation:

Value of investment in the beginning = $30,000

Value of investment at the end = $30,000 (1 + 0.08)

                                                    = $30,000 × 1.08

                                                    = $32,400

Interest paid = $15,000 × 6%

                     = $900

Rate of return:

=\frac{Value\ at\ the\ end-Value\ in\ beginning-Interest}{Total\ amount-Borrowed\ amount}\times100

=\frac{32,400-30,000-900}{30,000-15,000}\times 100

=\frac{1,500}{15,000}\times 100

      = 10%

Rate of return is 10% if the price of Telecom stock goes up by 8% during the next year.

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